Record cotton carryover hampering price upturn

What is in this article?:

• “World cotton growers produced 24 million bales more than we consumed in 2011," says O.A. Cleveland, Jr., Mississippi State University Extension agricultural economics professor emeritus.

• “The bottom line to that is world carryover increased from about 49 million bales to almost 75 million bales — a record increase and a record world carryover. I could never have imagined I would see that kind of carryover; it’s difficult to even grasp it.” Given the excessive cotton supply, price tanked, Clevleand says.

“A year ago, I promised you a cotton market that was nothing but roses, with prices above $1, and all of a sudden you were hit with a market that nosedived to 65 cents and was struggling for its life,” O.A. Cleveland, Jr., told growers this week. “Now, it’s 30 percent below this time in 2011.”

Despite last year’s drought in Texas that had pushed prices to the $1.45 range, he says, “We found out that, in the world cotton scheme, Texas doesn’t matter any more. They had a major crop bust — and the market ignored it.”

“We also found,” he said at the joint annual meeting of the Mississippi Boll Weevil Management Corporation and the Mississippi Farm Bureau Federation’s summer cotton policy committee, “that U.S. production doesn’t matter that much if there are good crops in both India and China.”

Cleveland, who is Extension economics professor emeritus at Mississippi State University, says good weather and $1-plus prices spurred a very large foreign crop last year, and India, which had imposed a total ban on exports of its cotton two years ago, resumed limited exports.

“The world ended up producing 24 million bales more than we consumed,” he says. “The bottom line to that is world carryover increased from about 49 million bales to almost 75 million bales — a record increase and a record world carryover. I could never have imagined I would see that kind of carryover; it’s difficult to even grasp it.”

Given the excessive cotton supply, price tanked, Cleveland says.

Couple the monster carryover with slower economic growth around the world, and fewer people working, purchasing power slipped into the doldrums.

“The big engine, consumer purchasing power that had pulled the economic train, lost steam and demand dropped. Demand will continue to struggle without that purchasing power; consumption will continue to be slow for cotton and other goods.”

And while the short-term outlook isn’t that rosy, he says the picture looks brighter moving into 2013.

“The USDA’s estimate is for U.S. production this year is 17 million bales. But it’s early in the season, and we won’t get an objective survey for several more weeks.

“The situation in Texas is a lot better than a year ago, but subsoil moisture is totally lacking, so they will be dependent on whatever rain falls and a little supplemental irrigation. Regardless, it will still be a short crop.”

“India has had severe problems with their monsoon which, two weeks ago, was 50 percent behind schedule. Things could still rebound to an extent, but they can’t totally make up for all that has been lost with their cotton crop.

“The USDA is forecasting a 1 million bale reduction for India, and, even with a normal monsoon from here on out, they could see another 1 million bale reduction.

“China’s area of commercialized cotton production has been having floods and cold weather, and areas of drought, but they’re not as severely impacted by adverse weather as India.”

Cleveland says he looks for a world crop this year that’s 4 million to 4.5 million bales smaller than 2011. “Consumption is rebuilding very slowly — it could gain 4 million to 5 million bales. This would give us a drawdown in stocks of about 10 million bales, which would take the record high stocks level down to about 65 million.

“That still would be the third largest ever carryover, and doesn’t point to strong prices. I would suggest we could see a low in the 64 cents to 65 cents range. Some analysts are saying 58 cents to 60 cents, but I feel this market has bottomed and I can’t think of a decent reason it would drop back that far.”